Exactly two years after Ford Motor announced it was ceasing manufacturing vehicles in India, the American auto giant has had a change of mind. Last week, Ford confirmed that it will indeed be manufacturing cars in the country again and will use its Chennai plant to do so.

Ford has a great reputation among auto enthusiasts and models such as the mid-size sport utility vehicle (SUV) Endeavour—sold as the Everest in global markets—continue to enjoy a cult status despite not being sold in the country anymore. Which is why many auto enthusiasts took the news to mean that the venerated auto maker would return to the country with models like the Everest. However, that may not necessarily be the case.

To understand this, let’s first look at why it discontinued manufacturing in India in the first place.

Ford’s ‘exit’: In its 2021 announcement, Ford had attributed the closing of its India manufacturing to the over $2 billion operating losses it had suffered over a decade. The COVID-19 pandemic and issues surrounding Ford’s partnership with Indian automaker Mahindra & Mahindra exacerbated the American carmaker’s declining sales.

Ford had two factories in India—one in Sanand, Gujarat, and another in Chennai, Tamil Nadu. Its Sanand plant was fully acquired by Tata Motors in January last year for Rs 725.7 crore (about $90 million).

According to estimates, the deal saved Tata about Rs 5,000 crore ($600 million), allowing the Indian carmaker to ramp up its vehicle production capacity by about 70% at the time. And Tata’s gain was Ford’s loss. The latter sold its smart, scalable factory built to global standards for peanuts. At the time, it seemed that Ford was also likely to sell its remaining plant in Chennai for pennies on the dollar.

The JSW Group finalized an agreement to acquire the Chennai plant for $100 million, but Ford called off the deal in December last year.

One reason could be that the Indian car market has significantly changed since Ford’s 2021 decision to cease manufacturing. Automakers are gradually abandoning their small car offerings to focus on SUVs and compact SUVs. This could give Ford an edge as it has a penchant for making SUVs in all shapes and sizes.

The Tamil Nadu government may have also played a role in prodding the company in that direction. The state government doggedly followed up with Ford to resume production in Chennai. It was concerned about the 99-year land lease that it provided to the automaker and the 5,000 shop floor jobs that were promised in return.

It also has a global business operations centre in Chennai with a 12,000-strong workforce, its second-largest in the world. All of this is likely to have played a role in the company’s decision to resume manufacturing here.

But there’s a catch. In reality, Ford has only committed to manufacturing cars at the Tamil Nadu plant without any clear plans to actually sell those cars here. So, it could be just looking to make cars here for export, at least for now.

Manufacturing for export? Ford’s choice to start manufacturing in India to export cars abroad puts it in a rather unique position. Here’s how.

A look at Indian automobile export data for the 2023-24 financial year shows that Maruti Suzuki and Hyundai together dominate nearly 70% of the market. Maruti Suzuki is in pole position, with a 42% market share, followed by Hyundai (24%). They rank similarly on domestic sales as well.

Meanwhile, Kia, Volkswagen, Nissan and Honda, whose domestic sales are like a footnote in comparison, share a big slice of the export pie. Volkswagen and Nissan export over 50% of what is manufactured in India to international markets. Honda, Jeep and Citroen export around 30% of their production volume here. Kia exports around 21% of its production.

Interestingly, when Indian vehicle exports had peaked in 2016-17, Ford was the second largest exporter with 21% market share right behind Hyundai (22%). Also, the Ford EcoSport was the most exported vehicle that year.

Ford seems to be headed in a direction where it is going for exports without any domestic sales. While no major carmaker in India seems to be doing this, it is not entirely without precedence.

For instance, take Nissan’s Sunny sedan and Mahindra’s KUV100 hatchback, which are manufactured in and exported from India even though they aren’t sold domestically. Maruti Suzuki’s Jimny is another example. Its three-door variant of the car, manufactured in India, was never sold in the country.

So, with its return to manufacturing in India, Ford is perhaps looking to kill two birds with one stone. It is cutting its losses from its hurried 2021 exit and tapping into a growing trend where carmakers are increasingly looking at India as a vehicle manufacturing hub. Whether or not to enter the domestic market is something Ford can decide at its own convenience even after it resumes manufacturing based on prevailing circumstances.

The company has been spooked by the advancement of Chinese electric vehicles and is now working on a low-cost EV platform. Ford hasn’t confirmed its exact manufacturing plans in the country but there is a good chance that its Chennai plant could work as a hub for EV manufacturing.

Cover Image from X / @FordIndia

Why Ford is returning to manufacturing in India

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